CEO says Sprint is close to deal as company announces first quarterly profit in years

Sprint CEO Marcelo Claure said the company is close to an announcement about its future and that he expects it to include a merger or other deal.

“We’ve had enough conversations to start making choices soon,” Claure said during a conference call with reporters.

His comments came after Sprint announced its first quarterly profit in three years, earning $206 million in April, May and June. It also added customers during the quarter.

Claure said Sprint and its parent company, Tokyo-based SoftBank Group Corp., have been in talks with many potential partners and that the list included wireless rival T-Mobile US and its parent firm, Germany-based Deutsche Telekom.

He specifically dispelled as “not factual” previous unconfirmed reports that Sprint had broken off talks with T-Mobile to pursue exclusive talks with cable companies Charter Communications and Comcast.

Other talks have involved companies not in the wireless industry, Claure said, adding that he expected a deal in the near future.

“We should be able to strike a deal with one of the different players,” Claure said during a quarterly conference call with analysts.

Claure repeated earlier comments that Sprint is a viable company, strong enough to stand on its own. But, he said, the benefits of combining with another wireless carrier or other company such as cable would make for a stronger business.

His remarks came after a public rebuff over the weekend by Charter Communications. Claure said he was surprised by reports that a Charter spokesman had said the company had no interest in acquiring Sprint.

“To be clear, Sprint was never offered to Charter for Charter to buy. It was part of a bigger play,” Claure said.

The bigger play conversation was about the value of combining Sprint’s wireless service with the landline phone, internet and cable services that cable companies provide. The bundle, known as a quad-play, is more prevalent in Europe and the aim of U.S. companies. Comcast, for example, has begun to offer wireless services under an agreement that allows it to use the Verizon network.

Claure said that Sprint’s talks have been ongoing since late April, when the federal government ended a moratorium on strategic talks as it wrapped up an auction of wireless airwaves licenses.

“Everybody has shown a high level of interest,” he said.

In choosing a deal, Sprint and SoftBank will weigh what is best for shareholders, consumers and employees, Claure said. It was too early to tell, he added, what impact any decision would have on the company’s headquarters in Overland Park, where about 6,000 people work.

Shares of Sprint climbed 89 cents, or 11.15 percent, to close at $8.87. T-Mobile shares climbed $1.41, or 2.29 percent, to close at $63.07.

Speculation about Sprint’s future has largely focused on a merger with rival T-Mobile, though analysts expect a proposal could face opposition from Washington. SoftBank stopped short of seeking a T-Mobile deal in 2014 when it became clear that antitrust objections likely would prevent a deal.

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A federal ban on merger talks in the telecom industry ended late in April which might mean a merger between Sprint and T-Mobile. This video includes footage from Sprint and photos from Bloomberg Gadfly and Bloomberg.

Neil Nakahodo, Shane Keyser and Mark DavisThe Kansas City Star

Claure said Tuesday that the Trump administration seems more open to transactions that would help the United States develop a new 5G wireless environment for the emerging network of connected devices called the internet of things. He said scale will be important to building a 5G network.

A deal with T-Mobile also would create the greatest benefits and cost savings among the choices Sprint faces, Claure said, making it the preferred option.

Still, Claure said no decisions have been made.

Analysts reacted to Claure’s comments with further speculation

Jonathan Chaplin of New Street Research told clients in a note that there are rumors SoftBank would “take Sprint private,” which ends the public trading of its shares, and combine it with Charter. He said he was skeptical such a deal would happen.

Craig Moffett of MoffettNathanson Research saw a risk in the public rebuff by Charter and earlier unconfirmed reports of talks that did not lead to deals.

“The obvious risk in so openly courting one potential suitor after another is that Sprint will increasingly be viewed as damaged goods,” Moffett’s note to clients said.

Sprint’s profit, the $206 million, marked a key moment in the wireless company’s turnaround, Claure said, adding that the results were sustainable.

“Sprint reached an important milestone this quarter by returning to profitability for the first time in three years,” Claure said in the company’s announcement. “This represents the progress of a turnaround journey that has delivered improvements in postpaid phone and prepaid customer growth, a return to top-line growth, and a significantly transformed cost structure.”

The company said it added 61,000 new connections to its network during the quarter, giving it 53.698 million at the end of June. It included gains of 88,000 post-paid phone consumers who generate the most revenue, but a larger decline in low-revenue tablets connected to the network.

Prepaid customers and those connecting through wholesale services also increased.

Financially, Sprint’s profit of $206 million was its first in three years.

Operations had generated $1.2 billion in profits, but much of that was consumed by interest expenses and other costs not directly related to running the company.

Revenues were $8.2 billion in the quarter.

Much of Sprint’s financial improvement has come from cutting costs through layoffs early in the turnaround and more widespread expense controls over two years. In that time, Sprint said it has trimmed $4 billion from annual operating costs.